<PAGE>
P I M C O
PIMCO VARIABLE INSURANCE TRUST
-------------------
ANNUAL REPORT
December 31, 1998
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with the first annual report for
PIMCO Variable Insurance Trust. During its inaugural 12 months of
operations, the Trust accumulated more than $111 million in net
assets spread across three active series.
The financial markets experienced remarkable volatility worldwide
during 1998 as investors reacted to international economic and
political discord. Despite these events, most markets rewarded
patient investors with favorable returns for the 12-month period
ended December 31, 1998. The U.S. stock market, as measured by the
Standard & Poor's 500 Index of stocks, rose 28.58%, and the overall
U.S. bond market, as measured by the Lehman Brothers Aggregate Bond
Index, posted an 8.69% return.
The impressive stock market growth of the first half of the year
ended abruptly in the third quarter as many domestic and foreign
investors re-allocated their assets, searching for more secure
places to invest. Russia's debt default and currency devaluation in
August, concern about further currency devaluations and weak Asian
economies made investors wary of taking risk. Heightened caution
reduced liquidity in most bond markets. Yield premiums required for
holding non-Treasury bonds doubled for some securities between mid-
summer and October.
The markets stabilized and liquidity was restored during the fourth
quarter after the Federal Reserve cut interest rates by 0.75% and
other central banks followed suit. As confidence returned,
Treasuries lost some appeal as a safe haven. Investors shifted
money to other bond market sectors and to stocks, which surged to
record highs. Yield premiums on corporate and emerging markets debt
narrowed, though they remained well above levels seen earlier in
the year.
On the following pages you will find a more complete review of the
stock and bond markets and specific details about the composition
and total return investment performance of each Portfolio.
We appreciate the trust you have placed in us, and we will continue
to focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
January 29, 1999
1998 Annual Report 1
<PAGE>
Market Review
Stock Market
Another Strong Year for Stocks
The stock market had more than its share of ups and downs in 1998.
However, by the end of the year the overall stock market posted its
fourth consecutive 20%+ gain. The year began with a jolt as the
market dropped in January but then rebounded quickly. In the second
quarter of 1998, a recurring case of the Asian flu dealt a powerful
blow to the market, and that mood prevailed through most of the
third quarter. Then Alan Greenspan came to the rescue, enacting the
first of three interest rate cuts in late September. The market
resumed the climb it had begun in the first quarter, albeit more
quickly.
Throughout much of the year the market was propelled by technology
issues and, more specifically, Internet stocks. Despite concerns
about overvaluation, Internet stocks continued their meteoric
ascent, dumbfounding Wall Street pundits. The rally spread to
computers, as Year 2000-motivated PC purchases and better inventory
management boosted this industry in the fourth quarter, lifting
semiconductor and semiconductor-related stocks as well.
A few areas in the equity markets saw disappointing returns this
year. Energy stocks suffered from the low price of oil. Small-caps
underperformed as investors continued their flight to quality,
seeking blue-chip names instead of smaller, relatively unknown
companies. Although Europe was boosted by the inception of the
European Monetary Union, most other international regions did
poorly. Devaluations, high interest rates, and failing economies
dragged many Asian and Latin American countries' markets down.
Looking ahead, the Adviser remains cautiously optimistic about the
stock market. There is a strong possibility of an earnings slowdown
in the coming year, which could temper the market but not push it
into negative territory. Stock selection will be of utmost
importance, and the Adviser believes that many good opportunities
still exist.
Bond Market
Good Times for Bonds
Six months ago in the semi-annual report to shareholders the
Adviser predicted the yield on long-term U.S. Treasury bonds could
range from 4% to 6%, with the 5% "handle" containing most of the
movement. This was evident in the past two quarters, as late in the
third quarter yields fell to below 5% for the first time since
1967. Yields remained around 5% through the end of the year.
The Treasury market benefited from continued global turmoil. The
economic problems that began in Asia and spread to Russia this past
summer, have more recently affected Latin America, particularly
Brazil. Unsuccessful action by the International Monetary Fund
further unsettled investor confidence. This global uncertainty
contributed to a massive flight to quality, as investors around the
world sought relative safety in U.S. Treasuries.
Although the municipal bond market did not benefit from the global
flight to quality, the sector is currently experiencing a
resurgence, with some non-taxable yields actually higher than
Treasuries. While Treasuries prospered, some other sectors of the
fixed income market missed out on the rally. For example,
investment grade corporate bonds along with high yield bonds were
hurt by fears that global problems would affect U.S. corporate
earnings and growth.
Going forward, the Adviser expects to see more countries acting to
defend their currencies, either by raising interest rates or
tightening control of capital. In either case, financial
uncertainties around the world may increase, ultimately causing the
U.S. economy to slow from its accelerated pace. The Federal Reserve
may again cut interest rates in the second half of 1999, reducing
the Fed Funds rate to the 4% to 4.5% range. If inflation remains in
its current low range, the real rate of returns on bonds should be
historically high, making this a relatively attractive opportunity
for bond investors.
2
<PAGE>
Total Return Bond Portfolio
- --------------------------------------------------------------------------------
FUND CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management.
Portfolio:
Primarily intermediate-term investment grade bonds.
Duration:
4.44 years
Total Net Assets:
$3 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Corporate Bonds & Notes 38.6%
Mortgage-Backed Securities 34.7%
Short-Term Instruments 17.4%
U.S. Treasury Obligations 9.3%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 66%
AA 8%
A 16%
BAA 7%
BA 3%
*% of Total Investments as of December 31, 1998
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
Total Return Investment Performance For the Period Ended December 31, 1998
Total Return
Bond Portfolio Lehman Brothers
(Incep. 12/31/97) Aggregate Bond Index
- --------------------------------------------------------------------------------
1 Year 8.61% 8.69%
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1998
$10,000 invested at inception
[LINE GRAPH APPEARS HERE]
Lehman
Brothers
Total Return Aggregate
MONTH Bond Portfolio Bond Index
======== ============== ==========
12/31/97 10,000.00 10,000.00
01/31/98 10,101.54 10,128.38
02/28/98 10,058.54 10,120.30
03/31/98 10,080.77 10,155.53
04/30/98 10,124.12 10,208.54
05/31/98 10,221.60 10,305.38
06/30/98 10,301.75 10,392.78
07/31/98 10,354.89 10,414.88
08/31/98 10,546.49 10,584.38
09/30/98 10,860.89 10,832.22
10/31/98 10,820.42 10,774.95
11/30/98 10,805.59 10,836.10
12/31/98 10,861.50 10,868.68
Past performance is not an indication of future results. The line graph above
assumes the investment of $10,000 on 1/1/98, the first full month following the
Portfolio inception on 12/31/97, compared to the Lehman Brothers Aggregate Bond
Index, an unmanaged market index. The Portfolio may invest in foreign securities
which involve potentially higher risks including foreign currency fluctuations
and political or economic uncertainty.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The Total Return Bond Portfolio returned 8.61% for the 12-month period ended
December 31, 1998, versus 8.69% for the Lehman Brothers Aggregate Bond Index.
. The Portfolio's above-benchmark duration, or sensitivity to interest rate
changes, during the first half of the year added modestly to returns as
interest rates fell across all maturities.
. Treasuries outperformed most other fixed-income sectors in 1998 as investors
fled to safe assets amid global financial turmoil. The Portfolio's emphasis
on Treasuries thus benefited returns.
. The Portfolio held corporates and mortgages for only a portion of the year,
effectively under-weighting these securities. This strategy added modestly to
returns as both sectors underperformed the benchmark.
. Small allocations to high-quality emerging markets credits for a portion of
the year detracted from returns as investors grew wary of this sector after
Russia's devaluation and effective default on its debt in August.
. Small holdings of below-investment-grade bonds detracted from returns as
yield premiums relative to Treasuries widened amid increased investor risk
aversion.
1998 Annual Report 3
<PAGE>
High Yield Bond Portfolio
- --------------------------------------------------------------------------------
FUND CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management.
Portfolio:
Primarily high yield bonds.
Duration:
4.55 years
Total Net Assets:
$50 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Corporate Bonds and Notes 89.6%
Short-term Instruments 5.3%
Other 5.1%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
A 1%
BAA 4%
BA 48%
B 47%
*% of Total Investments as of December 31, 1998
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1998
High Yield
Bond Portfolio. Lehman Intermediate
(Incep. 4/30/98) BB rated Corp. Index
- --------------------------------------------------------------------------------
Since Inception 1.80% 2.82%
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1998
$10,000 INVESTED AT INCEPTION
[LINE GRAPH APPEARS HERE]
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1998
$10,000 invested at inception
Lehman
High Yield Intermediate
Bond BB rated Corp.
MONTH Portfolio Index
======== ========== ==============
04/30/98 10,000.00 10,000.00
05/31/98 10,004.15 10,065.00
06/30/98 10,100.79 10,126.40
07/31/98 10,195.19 10,179.05
08/31/98 9,722.35 9,898.11
09/30/98 9,858.37 10,107.95
10/31/98 9,760.49 9,978.57
11/30/98 10,152.30 10,218.06
12/31/98 10,179.70 10,282.43
Past performance is not an indication of future results. The line graph above
assumes the investment of $10,000 on 5/1/98, the first full month following the
Portfolio inception on 4/30/98, compared to the Lehman Intermediate BB rated
Corporate Index, an unmanaged market index. The investments made by the High
Yield Portfolio may involve high risk and may have speculative characteristics.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. Emerging markets turmoil and stock market volatility spilled into the high
yield sector in the third quarter when yield premiums reached their widest
levels since the 1990-91 recession. High yield bonds recovered some on
their losses in the fourth quarter as investors moved into the sector to
capture near-record yield premiums versus high-quality government bonds.
. Despite this difficult environment, the High Yield Bond Portfolio slightly
underperformed its benchmark, the Lehman Intermediate BB rated Corporate
Index, for the period since inception on April 30, 1998 to December 31,
1998, returning 1.80% versus 2.82% for the Index.
. The Investment Adviser's more conservative industry orientation towards
media, telecommunication and utility bonds slightly helped performance as
most cyclical credits lagged.
. An underweight of commodity-dependent firms within the Portfolio in a
low-inflation environment boosted relative returns.
. Maintaining credit discipline during the third quarter sell-off enabled the
Portfolio to buy several quality credits at favorable prices that have
significantly recovered since purchase.
. Portfolio duration, or sensitivity to changes in interest rates, slightly
helped returns as U.S. interest rates fell significantly.
. The timing of the Portfolio's inception was a drag on performance as most
securities were purchased just prior to the third quarter sell-off.
. An allocation to B-rated securities detracted from performance as B-rated
bonds, on average, underperformed the BB-rated bonds in the Index by 4.5%
since the Portfolio's inception.
4
<PAGE>
StocksPLUS Growth and Income Portfolio
- --------------------------------------------------------------------------------
FUND CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Total return which exceeds that of the S&P 500 Index.
Portfolio:
Primarily S&P 500 Index futures and short-term bonds.
Duration:
0.49 years
Total Net Assets:
$58 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Short-Term Instruments 50.1%
Mortgage Backed Securities 21.9%
Corporate Bonds and Notes 20.2%
Asset-Backed Securities 6.1%
Other 1.7%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 87%
AA 4%
A 2%
BAA 6%
BA 4%
*% of Total Investments as of December 31, 1998
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
Total Return Investment Performance For the Period Ended December 31, 1998
StocksPLUS Growth
and Income Portfolio
(Incep. 12/31/97) S&P 500 Index
- --------------------------------------------------------------------------------
1 Year 30.11% 28.58%
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1998
$10,000 invested at inception
[LINE GRAPH APPEARS HERE]
StocksPLUS
Growth and
Income S&P 500
MONTH Portfolio Index
======== ========== =========
12/31/97 10,000.00 10,000.00
01/31/98 10,140.00 10,110.60
02/28/98 10,820.00 10,839.78
03/31/98 11,370.00 11,394.88
04/30/98 11,490.00 11,509.51
05/31/98 11,260.00 11,311.67
06/30/98 11,701.13 11,771.15
07/31/98 11,570.00 11,645.78
08/31/98 9,905.61 9,962.04
09/30/98 10,669.10 10,600.20
10/31/98 11,552.26 11,462.42
11/30/98 12,222.26 12,157.16
12/31/98 13,011.16 12,857.66
Past performance is not an indication of future results. The line graph above
assumes the investment of $10,000 on 1/1/98, the first full month following the
Portfolio inception on 12/31/97, compared to the Standard and Poor's 500 Index,
an unmanaged market index. The Portfolio may invest in foreign securities which
involve potentially higher risks including foreign currency fluctuations and
political or economic uncertainty.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. Despite increased volatility and notable losses during the third quarter,
U.S. large-cap stocks delivered remarkable returns in 1998. The total return
of the StocksPLUS Growth and Income Portfolio for the year ended December 31,
1998 was 30.11%, outperforming the 28.58% return provided by the S&P 500
Index.
. Global economic and financial uncertainty spurred a "flight to quality"
during the year that resulted in the strong performance of U.S. Treasuries
and Eurodollar futures positions held in the Portfolio.
. An overall duration longer than that of S&P 500 Index futures contracts
enhanced Portfolio returns as rates fell significantly during the year.
. Performance was also enhanced by the incremental yield provided by corporate
and mortgage holdings, although the price performance of these sectors was
mixed.
. Limited emerging market securities purchased in September, after yield
premiums had increased significantly, added to performance for the year.
. "StocksPLUS" is an enhanced index approach to equity investing in which PIMCO
uses S&P 500 Index futures and swaps contracts to obtain the price
performance of the S&P 500 Index and seeks excess returns by actively
managing the short-duration bond portfolio backing these contracts.
1998 Annual Report 5
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Total Return High Yield StocksPLUS Growth
Selected Per Share Data for the Year Ended: December 31, 1998 Bond Portfolio (a) Bond Portfolio (b) and Income Portfolio (c)
<S> <C> <C> <C>
Net asset value beginning of period $ 10.00 $ 10.00 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) 0.56 0.51 0.30
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (d) 0.28 (0.34) 2.68
- ----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 0.84 0.17 2.98
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.56) (0.50) (0.29)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.19) 0.00 (0.11)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.75) (0.50) (0.40)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 10.09 $ 9.67 $ 12.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total return 8.61% 1.80% 30.11%
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 3,259 $ 49,761 $ 58,264
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.65% 0.75%* 0.65%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.55% 7.90%* 5.30%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 138.72% 12.94% 60.64%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) Commenced operations on December 31, 1997.
(b) Commenced operations on April 30, 1998.
(c) Commenced operations on December 31, 1997.
(d) Per share amounts based on average number of shares outstanding during the
period.
6 See accompanying notes
<PAGE>
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Total Return High Yield StocksPLUS Growth
Amounts in thousands, except per share amounts Bond Portfolio Bond Portfolio and Income Portfolio
------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments, at value $ 3,479 $ 48,924 $ 57,517
- ------------------------------------------------------------------------------------------------------------------------------------
Cash 0 0 139
- ------------------------------------------------------------------------------------------------------------------------------------
Receivable for investments and foreign currency sold 0 504 24
- ------------------------------------------------------------------------------------------------------------------------------------
Receivable for portfolio shares sold 0 213 193
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividends receivable 71 929 249
- ------------------------------------------------------------------------------------------------------------------------------------
Variation margin receivable 0 0 158
- ------------------------------------------------------------------------------------------------------------------------------------
Manager reimbursement receivable 3 12 10
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 5 5 5
- ------------------------------------------------------------------------------------------------------------------------------------
3,558 50,587 58,295
====================================================================================================================================
Liabilities:
Payable for investments and foreign currency purchased $ 296 $ 398 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for portfolio shares purchased 0 0 1
- ------------------------------------------------------------------------------------------------------------------------------------
Written options outstanding 0 0 2
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued investment advisory fee 1 21 17
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued administration fee 1 11 11
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 1 396 0
- ------------------------------------------------------------------------------------------------------------------------------------
299 826 31
====================================================================================================================================
Net Assets $ 3,259 $ 49,761 $ 58,264
====================================================================================================================================
Net Assets Consist of:
Paid in capital $ 3,232 $ 50,478 $ 53,610
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 0 2 14
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) 4 (87) 2,001
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 23 (632) 2,639
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,259 $ 49,761 $ 58,264
====================================================================================================================================
Shares Issued and Outstanding 323 5,146 4,632
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 10.09 $ 9.67 $ 12.58
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Investments Owned $ 3,447 $ 49,556 $ 57,382
====================================================================================================================================
</TABLE>
7 1998 Annual Report See accompanying notes
<PAGE>
Statements of Operations
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Total Return High Yield StocksPLUS Growth
Amounts in thousands Bond Portfolio (a) Bond Portfolio and Income Portfolio
---------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest $ 192 $ 1,672 $ 856
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 0 57 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income 192 1,729 856
====================================================================================================================================
Expenses:
Investment advisory fees 12 99 57
- ------------------------------------------------------------------------------------------------------------------------------------
Administration fees 8 50 36
- ------------------------------------------------------------------------------------------------------------------------------------
Trustees' fees 2 12 10
- ------------------------------------------------------------------------------------------------------------------------------------
Organization costs 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 23 162 104
- ------------------------------------------------------------------------------------------------------------------------------------
Reimbursement by manager (3) (12) (10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 20 150 94
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 172 1,579 762
====================================================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments (12) (87) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts and written options 76 0 2,425
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on foreign currency transactions 0 0 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 32 (632) 135
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts and written options (9) 0 2,504
- ------------------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 87 (719) 5,061
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 259 $ 860 $ 5,823
====================================================================================================================================
</TABLE>
(a) Period from April 30, 1998 to December 31, 1998.
8 See accompanying notes
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Amounts in thousands
Total Return High Yield StocksPLUS Growth
Bond Portfolio Bond Portfolio and Income Portfolio
-------------------------------------------------------------------------
Year Ended Period from Year Ended
Increase (Decrease) in Net Assets from: December 31, 1998 April 30,1998 December 31, 1998
to December 31, 1998
<S> <C> <C> <C>
Operations:
Net investment income $ 172 $ 1,579 $ 762
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 64 (87) 2,422
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 23 (632) 2,639
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase resulting from operations 259 860 5,823
====================================================================================================================================
Distributions to Shareholders:
From net investment income (172) (1,577) (748)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized capital gains (60) 0 (421)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (232) (1,577) (1,169)
====================================================================================================================================
Portfolio Share Transactions:
Receipts for shares sold 2,900 65,974 64,713
- ------------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 232 1,577 1,169
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed 0 (17,073) (12,272)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) resulting from Portfolio share transactions 3,132 50,478 53,610
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets $ 3,159 $ 49,761 $ 58,264
====================================================================================================================================
Net Assets:
Beginning of period 100 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
End of period * $ 3,259 $ 49,761 $ 58,264
- ------------------------------------------------------------------------------------------------------------------------------------
*Including net undistributed investment income of: $ 0 $ 2 $ 14
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report See accompanying notes 9
<PAGE>
Schedule of Investments
Total Return Bond Portfolio
December 31, 1998
Principal
Amount Value
(000s) (000s)
- ------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 47.1%
- ------------------------------------------------------------------------------
Banking & Finance 17.0%
Associates Corp. of North America
6.450% due 10/15/01 $ 100 $ 102
Dean Witter Discover
5.584% due 06/27/00 (c) 100 100
Ford Motor Credit Corp.
5.498% due 10/15/02 (c) 150 149
Merrill Lynch & Co.
5.487% due 05/08/01 (c) 100 100
PNC Funding Corp.
6.125% due 09/01/03 100 102
-----------
553
Industrials 3.2%
Philip Morris Cos., Inc.
7.250% due 09/15/01 100 104
Utilities 20.9%
California Energy
10.250% due 01/15/04 140 148
Philadelphia Electric
6.500% due 05/01/03 100 104
Sprint Corp.
8.125% due 07/15/02 150 163
Texas Utilities Co.
7.375% due 08/01/01 100 105
United Telecom
9.500% due 06/06/01 150 163
-----------
683
-----------
Total Corporate Bonds & Notes 1,340
(Cost $1,325) ===========
- ------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 37.1%
- ------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 11.5%
8.500% due 08/01/24 360 376
Federal Housing Administration 25.6%
7.430% due 01/25/23 (c) 792 834
-----------
Total Mortgage-Backed Securities 1,210
(Cost $1,192) ===========
- ------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 9.9%
- ------------------------------------------------------------------------------
U.S. Treasury Bonds
9.125% due 05/15/18 200 290
U.S. Treasury Strips
0.000% due 08/15/19 100 32
-----------
Total U.S. Treasury Obligations 322
(Cost $324) ===========
- ------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 16.6%
- ------------------------------------------------------------------------------
Commercial Paper 15.3%
BellSouth Telecommunications, Inc
5.050% due 01/13/99 100 100
General Electric Co.
5.510% due 01/25/99 100 100
General Motors Acceptance Corp.
5.510% due 01/25/99 100 100
National Rural Utilities Cooperative
4.880% due 03/23/99 100 99
Procter & Gamble Co.
5.250% due 02/05/99 100 100
-----------
499
===========
- ------------------------------------------------------------------------------
Repurchase Agreement 2.7%
State Street Bank
4.000% due 01/04/99 $ 88 $ 88
(Dated 12/31/98. Collateralized by
U.S. Treasury Bills 6.000% 02/15/26
valued at $94,403. Repurchase
proceeds are $88,039.)
U.S. Treasury Bills (b) 0.6%
4.310% due 05/27/99 20 20
-----------
Total Short-Term Instruments 607
(Cost $606) -----------
Total Investments (a) 106.7% $ 3,459
(Cost $3,447)
Other Assets and Liabilities (Net) (6.7%) (220)
-----------
Net Assets 100.0% $ 3,259
===========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized
appreciation (depreciation) of investments based
on cost for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 36
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (4)
-----------
Unrealized appreciation-net $ 32
===========
(b) Securities with an aggregate market
value of $20 have been segregated with
the custodian to cover margin requirements
for the following open futures contracts
at December 31, 1998:
Unrealized
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
U.S. Treasury 10 Year Note (03/99) 9 $ (9)
(c) Variable rate security. The rate is as of December 31, 1998.
10 See accompanying notes
<PAGE>
Schedule of Investments
High Yield Bond Portfolio
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 88.2%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking & Finance 6.0%
Forest City Enterprises
8.500% due 03/15/08 $ 250 $ 252
Fuji Bank
9.870% due 12/31/49(b) 100 72
Helicon Group
11.000% due 11/01/03(b) 600 627
Imperial Credit Industries, Inc.
9.875% due 01/15/07 300 233
Nationwide Credit, Inc.
10.250% due 01/15/08 200 167
Sumitomo
9.400% due 12/29/49(b) 100 95
TPSA Finance BV
7.750% due 12/10/08 750 742
Trizec Finance Limited
10.875% due 10/15/05 750 801
-----------
2,989
Industrials 70.7%
Aaf-Mcquay, Inc.
8.875% due 02/15/03 500 493
Abbey Healthcare Group
9.500% due 11/01/02 200 194
Advanced Lighting
8.000% due 03/15/08 450 407
AEI Holding Co.
10.500% due 12/15/05 350 350
Allied Waste North America, Inc.
7.625% due 01/01/06 750 758
American Commercial Lines
10.250% due 06/30/08 400 408
American Standard
7.375% due 02/01/08 500 503
Amphenol Corp.
9.875% due 05/15/07 200 205
Avalon Cable
9.375% due 02/01/08 250 257
Ball Corp.
7.750% due 08/01/06 250 263
8.250% due 08/01/08 250 261
Benedek Broadcasting Corp.
11.875% due 03/01/05 500 545
Beverly Enterprises, Inc.
9.000% due 02/15/06 300 306
Buckeye Technologies, Inc.
8.000% due 10/15/10 800 772
Building Materials Corp.
7.750% due 07/15/05 200 198
8.000% due 12/01/08 400 401
8.625% due 12/15/06 250 259
Call-Net Enterprises, Inc.
8.000% due 08/15/08 200 194
Century Communications Corp.
0.000% due 03/15/03(d) 400 297
8.750% due 10/01/07 400 442
Circus Circus Enterprises
6.750% due 07/15/03 100 93
Clark R&M Holdings
8.375% due 11/15/07 250 236
Coltec Industries, Inc.
7.500% due 04/15/08 400 426
Columbus McKinnon
8.500% due 04/01/08 250 236
Comcast Cellular
9.500% due 05/01/07 450 479
Comcast Corp.
9.500% due 01/15/08 700 749
Cross Timbers Oil Co.
8.750% due 11/01/09 250 224
9.250% due 04/01/07 250 234
CSC Holdings, Inc.
9.875% due 02/15/13 500 558
Echostar Communications Corp.
0.000% due 06/01/04(c) 700 720
Extended Stay America
9.150% due 03/15/08 250 236
Extendicare Health Services
9.350% due 12/15/07 350 334
Falcon Holding Group LP
8.375% due 04/15/10 500 520
Federal-Mogul Corp.
7.500% due 07/01/04 150 152
7.750% due 07/01/06 350 359
Fisher Scientific
9.000% due 02/01/08 375 377
Gardern State Newspapers
8.750% due 10/01/09 250 251
Globalstar LP
11.375% due 02/15/04 250 190
Goss Graphic Systems, Inc.
12.000% due 10/15/06 100 56
Grupo Televisa SA
0.000% due 05/15/08(c) 275 206
11.375% due 05/15/03 150 149
Gulf Canada Resources
9.625% due 07/01/05 350 366
HMH Properties, Inc.
7.875% due 08/01/05 350 343
8.450% due 12/08/06 150 151
Hollinger International Publishing
8.625% due 03/15/05 150 158
9.250% due 03/15/07 400 424
Huntsman Corp.
9.500% due 07/01/07 450 450
Huntsman Packaging Corp.
9.125% due 10/01/07 350 350
Integrated Health Services
9.500% due 09/15/07 200 191
Intermedia Communications, Inc.
0.000% due 05/15/06(c) 500 394
ISP Holdings, Inc.
9.000% due 10/15/03 200 213
9.750% due 02/15/02 500 534
J. Ray McDermott
9.375% due 07/15/06 500 530
J.Q. Hammons Hotels
8.875% due 02/15/04 250 233
Jones Intercable, Inc.
8.875% due 04/01/07 250 273
K Mart Corp.
8.130% due 12/16/03 500 515
K-III Communications Co.
8.500% due 02/01/06 400 408
L-3 Communications Corp.
10.375% due 05/01/07 400 441
Level 3 Communications, Inc.
9.125% due 05/01/08 650 644
Lin Television Corp.
8.375% due 03/01/08 500 503
Magnum Hunter Resources, Inc.
10.000% due 06/01/07 250 214
Mail-Well, Inc.
8.750% due 12/15/08 500 503
McLeodUSA Inc.
0.000% due 03/01/07(c) 600 456
9.500% due 11/01/08 250 266
MJD Communications, Inc.
9.500% due 05/01/08 400 396
NTL, Inc.
11.500% due 10/01/08 400 439
Ocean Rig Norway
10.250% due 06/01/08 120 97
</TABLE>
1998 Annual Report See accompanying notes 11
<PAGE>
Schedule of Investments (Cont.)
High Yield Bond Portfolio
December 31, 1998
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Optel, Inc.
11.500% due 07/01/08 $ 200 $ 196
Orion Network Systems, Inc.
0.000% due 01/15/07(c) 400 252
P&L Coal Holdings
8.875% due 05/15/08 400 410
Packard Bioscience Co.
9.375% due 03/01/07 150 143
Perry-Judd
10.625% due 12/15/07 450 475
Petroleos Mexicanos
10.261% due 07/15/05(b) 300 278
Phar-Mor, Inc.
11.720% due 09/11/02 150 158
Pharmerica, Inc.
8.375% due 04/01/08 500 453
Physician Sales and Service, Inc.
8.500% due 10/01/07 375 393
Polymer Group, Inc.
8.750% due 03/01/08 400 395
Pool Energy Co.
8.625% due 04/01/08 350 333
Pride International, Inc.
9.375% due 05/01/07 250 228
Qwest Communications International, Inc.
0.000% due 10/15/07(c) 150 117
0.000% due 02/01/08(c) 610 464
R.H. Donnelly, Inc.
9.125% due 06/01/08 125 132
Regal Cinemas, Inc.
8.875% due 12/15/10 400 399
9.500% due 06/01/08 50 52
Renaissance Media Group
0.000% due 04/15/08(c) 100 69
Revlon Consumer Products
8.125% due 02/01/06 300 290
Safety-Kleen Services
9.250% due 06/01/08 250 259
SC International Services, Inc.
9.250% due 09/01/07 300 302
Silgan Holdings, Inc.
9.000% due 06/01/09 300 304
Smithfield Foods
7.625% due 02/15/08 275 278
Stater Brothers Holdings
11.000% due 03/01/01 250 248
Station Casinos, Inc.
9.750% due 04/15/07 250 263
Sun Healthcare Group, Inc.
9.375% due 05/01/08 250 201
9.500% due 07/01/07 150 122
Supercanal Holdings
11.500% due 05/15/05 100 61
Synthetic Industries, Inc.
9.250% due 02/15/07 450 464
Telewest Communications
9.625% due 10/01/06 400 408
Tenet Healthcare Corp.
8.625% due 12/01/03 250 264
TFM SA de CV
0.000% due 06/15/09(c) 200 94
Trans-Resources, Inc.
10.750% due 03/15/08 350 348
United Defense Industry, Inc.
8.750% due 11/15/07 250 254
United Refining Co.
10.750% due 06/15/07 150 104
US Air, Inc.
9.330% due 01/01/06 147 157
9.625% due 09/01/03 200 217
Vintage Petroleum
9.000% due 12/15/05 300 293
Westpoint Stevens, Inc.
7.875% due 06/15/08 500 511
World Color Press, Inc.
8.375% due 11/15/08 600 603
Young Broadcasting, Inc.
8.750% due 06/15/07 300 306
Ziff-Davis, Inc.
8.500% due 05/01/08 100 99
------------
35,187
Utilities 11.5%
AES Corp.
10.250% due 07/15/06 500 543
Bridas Corp.
12.500% due 11/15/99 300 306
Calpine Corp.
7.875% due 04/01/08 200 202
10.500% due 05/15/06 175 194
CMS Energy
8.125% due 05/15/02 500 513
Coho Energy, Inc.
8.875% due 10/15/07 300 257
Flag Limited
8.250% due 01/30/08 150 147
8.250% due 01/30/08 400 392
ITC Deltacom
8.875% due 03/01/08 350 343
Metromedia Fiber Network, Inc.
10.000% due 11/15/08 500 516
Metronet Communications Corp.
0.000% due 06/15/08(c) 200 124
Nextel Communications, Inc.
0.000% due 02/15/08(c) 500 299
Niagara Mohawk Power
7.750% due 10/01/08 250 273
Nuevo Energy Co.
8.875% due 06/01/08 170 162
Orange PLC
8.000% due 08/01/08 475 482
Rural Cellular Corp.
9.625% due 05/15/08 350 353
Sprint Spectrum LP
11.000% due 08/15/06 500 580
------------
5,686
------------
Total Corporate Bonds & Notes 43,862
(Cost $44,466) ============
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 0.1%
- --------------------------------------------------------------------------------
U.S. Treasury Strips
0.000% due 08/15/26 200 46
------------
Total U.S. Treasury Obligations 46
(Cost $40) ============
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 1.6%
- --------------------------------------------------------------------------------
Airplanes Pass Through Trust
10.875% due 03/15/19 300 338
Morgan Stanley Aircraft Finance
8.700% due 03/15/23 500 456
------------
Total Asset-Backed Securities 794
(Cost $788) ============
- --------------------------------------------------------------------------------
SOVEREIGN ISSUES 0.8%
- --------------------------------------------------------------------------------
Republic of Argentina
6.188% due 03/31/05(b) 235 200
Republic of Korea
8.875% due 04/15/08 200 206
------------
Total Sovereign Issues 406
(Cost $401) ============
12 See accompanying notes
<PAGE>
Value
Shares (000s)
- --------------------------------------------------------------------------------
PREFERRED STOCK 2.4%
- --------------------------------------------------------------------------------
CSC Holdings, Inc.
12.293% due 01/01/00 2,713 $ 303
Fresenius Medical Care
7.875% due 02/01/08 400 383
9.000% due 12/01/06 500 521
------------
Total Preferred Stock 1,207
(Cost $1,252) ============
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 5.2%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Commercial Paper 4.8%
Ameritech Corp.
5.660% due 01/15/99 $ 700 699
General Electric Capital Corp
5.140% due 01/12/99 700 699
5.500% due 01/29/99 800 797
5.500% due 02/04/99 200 199
------------
2,394
============
Repurchase Agreement 0.4%
State Street Bank
4.000% due 01/04/99 215 215
(Dated 12/31/98. Collateralized by ------------
U.S. Treasury Bills 8.750% 05/15/17
valued at $223,929. Repurchase
proceeds are $215,096.)
Total Short-Term Instruments 2,609
(Cost $2,609) ============
Total Investments (a) 98.3% $ 48,924
(Cost $49,556)
Other Assets and Liabilities (Net) 1.7% 837
------------
Net Assets 100.0% $ 49,761
============
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 567
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (1,211)
------------
Unrealized depreciation-net $ (644)
------------
(b) Variable rate security. The rate listed is as December 31, 1998.
(c) Security becomes interest bearing at a future date.
(d) Zero-coupon security.
1998 Annual Report See accompanying notes 13
<PAGE>
Schedule of Investments
StocksPLUS Growth and Income Portfolio
December 31, 1998
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 20.0%
- --------------------------------------------------------------------------------
Banking & Finance 8.8%
American General Corp.
6.050% due 07/02/01(d) $ 300 $ 303
Chrysler Financial Corp.
5.253% due 06/11/01(d) 600 598
Edison Funding
6.050% due 12/17/99 1,000 1,006
Lehman Brothers Holdings, Inc.
8.150% due 05/15/00 100 102
Merrill Lynch
5.750% due 11/20/00(d) 1,000 1,000
Nacional Financiera
8.649% due 12/01/00(d) 1,000 1,010
Paine Webber Group, Inc.
7.700% due 02/11/00 130 132
Steers Securities
6.438% due 05/12/99(d) 1,000 1,000
------------
5,151
Industrials 5.1%
Champion International Corp.
9.700% due 05/01/01 300 325
Delta Air Lines
6.034% due 06/29/99(d) 1,000 1,000
Petroleos Mexicanos
10.261% due 07/15/05(d) 500 464
RJR Nabisco
8.000% due 07/15/01 65 65
8.625% due 12/01/02 65 66
Time Warner, Inc.
4.900% due 07/29/99 1,000 997
US Air, Inc.
9.625% due 09/01/03 30 32
------------
2,949
Utilities 6.1%
Central Maine
6.997% due 10/25/99(d) 1,000 1,005
Enron Corp.
5.734% due 03/30/00(d) 1,000 998
Florida Gas Transmission
8.140% due 11/01/99 1,000 1,021
Noram Energy
7.500% due 08/01/00 500 516
------------
3,540
------------
Total Corporate Bonds & Notes 11,640
(Cost $11,571) ============
- --------------------------------------------------------------------------------
MORTAGAGE-BACKED SECURITIES 21.7%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 20.2%
Countrywide Home Loans
6.500% due 03/25/28 778 784
Federal National Mortgage Assn.
7.000% due 06/25/06 1,000 1,002
GE Capital Mortgage Services, Inc.
6.500% due 12/25/23 2,057 2,051
Government National Mortgage Assn.
7.500% due 08/20/21 962 968
Headlands Mortgage Securities, Inc.
7.000% due 02/25/28 1,317 1,331
7.250% due 11/25/27 1,000 1,018
Independent National Mortgage Corp.
8.350% due 06/25/25 976 987
Prudential Home Mortgage Securities
6.750% due 08/25/08 637 632
Residential Funding Mortgage Securities, Inc.
6.500% due 07/25/08 396 397
7.250% due 08/25/27 1,582 1,591
7.250% due 10/25/27 1,000 1,007
------------
11,768
Federal National Mortgage Association 1.5%
6.134% due 08/01/31(d) 84 85
6.153% due 08/01/29(d) 294 296
6.400% due 12/01/28(d) 450 456
------------
837
------------
Total Mortgage-Backed Securities 12,605
(Cost $12,586) ============
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 6.0%
- --------------------------------------------------------------------------------
First Plus Home Loan Trust
6.450% due 02/10/09 1,000 1,002
Rescuritization Mortgage Trust
5.879% due 04/26/21(d) 901 890
Green Tree Home Equity Loan Trust
6.000% due 06/15/29 530 533
Money Store Home Equity Trust
6.345% due 11/15/21 500 503
Morgan Stanley Capital
5.854% due 07/25/27(d) 577 585
------------
Total Asset-Backed Securities 3,513
(Cost $3,666) ============
- --------------------------------------------------------------------------------
SOVEREIGN ISSUES 1.6%
- --------------------------------------------------------------------------------
Republic of Korea
7.813% due 04/08/00(d) 1,000 958
------------
Total Sovereign Issues 958
(Cost $933)
- --------------------------------------------------------------------------------
PURCHASED PUT OPTIONS 0.0%
- --------------------------------------------------------------------------------
Eurodollar June Futures (CME)
Strike @ 92.75 Exp. 06/14/99 12,000 0
Eurodollar September Futures (CME)
Strike @ 91.75 Exp. 09/14/99 15,000 0
------------
Total Purchased Put Options 0
(Cost $0) ============
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 49.4%
- --------------------------------------------------------------------------------
Commercial Paper 41.6%
Ameritech Corp.
5.660% due 01/15/99 2,500 2,496
BellSouth Telecommunications, Inc
5.050% due 01/13/99 2,500 2,497
Federal Home Loan Mortgage Corp.
5.080% due 01/20/99 7,500 7,483
Ford Motor Credit Corp.
5.460% due 01/15/99 2,000 1,997
5.510% due 01/22/99 500 499
General Electric Capital Corp
5.500% due 02/04/99 2,000 1,991
5.890% due 01/13/99 500 499
General Motors Acceptance Corp.
5.510% due 01/25/99 1,000 997
5.510% due 01/25/99 600 598
National Rural Utilities Cooperative
4.880% due 03/23/99 1,000 989
Procter & Gamble Co.
5.250% due 02/05/99 1,200 1,194
Texas Utilities
6.042% due 02/12/99 2,980 2,980
------------
24,220
------------
Repurchase Agreement 3.5%
State Street Bank
4.000% due 01/04/99 2,070 2,070
(Dated 12/31/98. Collateralized by ============
U.S. Treasury Note 6.250% 02/28/02
valued at $2,111,424. Repurchase
proceeds are $2,070,920.)
14 See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
U.S. Treasury Bills (b)(e) 4.3%
4.332% due 01/07/99-03/04/99 $ 2,525 $ 2,511
------------
Total Short-Term Instruments 28,801
(Cost $28,800) ============
Total Investments (a) 98.7% $ 57,517
(Cost $57,382)
Written Options (c) (0.0%) (2)
(Premiums $3)
Other Assets and Liabilities (Net) 1.3% 749
------------
Net Assets 100.0% $ 58,264
============
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 165
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (30)
------------
Unrealized appreciation-net $ 135
============
(b) Securities with an aggregate market value of
$2,511 have been segregated with the custodian to
cover margin requirements for the following open futures
contracts at December 31, 1998:
Unrealized
Appreciation/
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
S&P 500 Index (03/99) 186 $ 2,504
Mini S&P 500 Index (03/99) 1 0
Eurodollar March Futures (03/00) 2 0
Eurodollar June Futures (06/00) 2 (0)
Eurodollar September Futures (09/00) 2 0
Eurodollar September Futures (09/01) 3 3
Eurodollar December Futures (12/99) 2 (2)
------------
$ 2,505
============
(c) Premiums received on written options:
Type Contracts Premium Value
- --------------------------------------------------------------------------------
Call - CBOT U.S. Treasury Bond March Futures
Strike @ 138.00 Exp. 02/20/99 5 $ 1 $ 0
Put - CBOT U.S. Treasury Bond March Futures
Strike @ 120.00 Exp. 02/20/99 3 1 (1)
Put - CBOT U.S. Treasury Bond March Futures
Strike @ 122.00 Exp. 02/20/99 3 1 (1)
-------------------------------
$ 3 $ (2)
===============================
(d) Variable rate security. The rate is as of December 31, 1998.
(e) Securities are grouped by a range of coupons and represent a range of
maturities.
1998 Annual Report See accompanying notes 15
<PAGE>
Notes to Financial Statements
December 31, 1998
1. Organization
The PIMCO Variable Insurance Trust (the "Trust") is an open-end investment
company organized as a Delaware business trust on October 3, 1997. The Trust is
designed to be used as an investment vehicle by Separate Accounts of insurance
companies that fund variable annuity contracts and variable life insurance
policies and by qualified pension and retirement plans. The Trust consist of
sixteen separate portfolios: Money Market, Short-Term Bond, Low Duration Bond,
Real Return Bond, Total Return Bond, High Yield Bond, Long-Term U.S. Government,
Global Bond, Foreign Bond, Emerging Markets Bond, Strategic Balanced, StocksPLUS
Growth and Income, Equity Income, Capital Appreciation, Mid-Cap Growth and
Small-Cap Value Portfolios (the "Portfolios"). On December 22, 1997 the Total
Return Bond Portfolio was provided seed capital of $100,000 by the Adviser. The
active Portfolios and their commencement of operations dates are set forth
below:
Total Return Bond Portfolio December 31, 1997
High Yield Bond Portfolio April 30, 1998
StocksPLUS Growth and Income Portfolio December 31, 1997
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial instruments for
which market quotations are readily available are stated at market value. Market
value is determined on the basis of last reported sales prices, or if no sales
are reported, as is the case for most securities traded over-the-counter, the
mean between representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Short-term investments
having a maturity of 60 days or less are valued at amortized cost, which
approximates market value. Certain fixed income securities for which daily
market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have passed,
are recorded as soon as the Portfolio is informed of the ex-dividend date.
Interest income, adjusted for the accretion of discounts and amortization of
premiums, is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period. Fluctuations in the value of these assets and liabilities
resulting from changes in exchange rates are recorded as unrealized foreign
currency gains (losses). Realized gains (losses) and unrealized appreciation
(depreciation) on investment securities and income and expenses are translated
on the respective dates of such transactions. The effect of changes in foreign
currency exchange rates on investments in securities are not segregated in the
Statement of Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investment securities.
16
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1998
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, of each Portfolio, except the StocksPLUS Growth and Income
Portfolio are declared on each day the Trust is open for business and are
distributed to shareholders monthly. Dividends from net investment income, if
any, of the StocksPLUS Growth and Income Portfolio is declared and distributed
to shareholders quarterly. All dividends are reinvested in additional shares of
the related Portfolios. Net realized capital gains earned by a Portfolio, if
any, will be distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for such items as wash sales, foreign currency transactions, net
operating losses and capital loss carryforwards.
In addition, other amounts have been reclassified between undistributed net
investment income, accumulated undistributed net realized gains or losses and
paid in capital to more appropriately conform financial accounting to tax basis
accounting of dividend distributions.
Federal Income Taxes. Each Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net realized
gains, if applicable, to shareholders. Accordingly, no provision for Federal
income taxes has been made.
Financing Transactions. A Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The difference
between the selling price and the future purchase price is an adjustment to
interest income. If the counterparty to whom the Portfolio sells the security
becomes insolvent, a Portfolio's right to repurchase the security may be
restricted; the value of the security may change over the term of the financing
transaction; and the return earned by a Portfolio with the proceeds of a
financing transaction may not exceed transaction costs. Included in payable for
investments and foreign currency purchased are amounts of $293,063 and $198,250
for the Total Return Bond and High Yield Bond Portfolios, respectively, related
to these financing transactions.
Futures and Options. Certain Portfolios are authorized to enter into futures
contracts and options. A Portfolio may use futures contracts to manage its
exposure to the markets or to movements in interest rates and currency values.
The primary risks associated with the use of futures contracts and options are
imperfect correlation between the change in market value of the securities held
by a Portfolio and the prices of futures contracts and options, the possibility
of an illiquid market, and the inability of the counterparty to meet the terms
of the contract. Futures contracts and purchased options are valued based upon
their quoted daily settlement prices. The premium received for a written option
is recorded as an asset with an equal liability which is marked to market based
on the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. Each Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be equal at
all times to the total amount of the repurchase obligations, including interest.
Generally, in the event of counterparty default, the Portfolio has the right to
use the collateral to offset losses incurred.
1998 Annual Report 17
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1998
Restricted Securities. The Portfolios are permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly-owned subsidiary partnership
of PIMCO Advisors L.P., serves as investment adviser (the "Adviser") to the
Trust, pursuant to an investment advisory contract. The Advisory Fee is charged
at an annual rate of 0.40% of net assets for the Total Return Bond and
StocksPLUS Growth and Income Portfolios; and 0.50% of net assets for the High
Yield Bond Portfolio.
Administration Fee. PIMCO serves as administrator (the "Administrator"), and
provides administrative services to the Trust for which it receives from each
Portfolio a monthly administrative fee based on average daily net assets. The
Administration Fee is charged at the annual rate of 0.25% for the Total Return
Bond, High Yield Bond and StocksPLUS Growth and Income Portfolios.
Expenses. PIMCO pays for most of the expenses of the Portfolios, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the cost of registration of the Trust's shares and the printing
of prospectuses and shareholder reports for current shareholders or other
appropriate parties. The Portfolios are responsible for bearing certain expenses
associated with their operations that are not provided or procured by PIMCO.
PIMCO has voluntarily undertaken to waive and reimburse expenses of each
Portfolio to the extent necessary, to limit the expenses to 0.65%, 0.75% and
0.65% of average daily net assets of the Total Return Bond, High Yield Bond and
StocksPLUS Growth and Income Portfolios, respectively. For the year ended
December 31, 1998, expenses of the Total Return Bond, High Yield Bond and
StocksPLUS Growth and Income Portfolios have been reduced by $3,205, $12,352 and
$10,435. Under the Expense Limitation Agreement, PIMCO may recoup these waivers
and reimbursements in future periods, not exceeding three years, provided total
expenses, including any such recoupment, do not exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any other officer who
is affiliated with the Administrator, all of whom receive remuneration for their
services to the Trust from the Administrator or its affiliates.
Each unaffiliated Trustee receives an annual retainer of $4,000, plus
$1,500 for each Board of Trustees meeting attended in person and $250 for each
meeting attended telephonically, plus reimbursement of related expenses. In
addition, an unaffiliated Trustee who serves as a Committee Chair receives an
additional annual retainer of $500. These expenses are allocated to the
Portfolios of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
----------------------------------------------------------------
Purchases Sales Purchases Sales
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Bond Portfolio $ 3,486 $ 0 $ 2,381 $ 2,861
High Yield Bond Portfolio 39 0 50,651 3,746
StocksPLUS Growth and Income Portfolio 4,046 3,034 29,703 1,043
</TABLE>
18
<PAGE>
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
StocksPLUS Growth and Income Portfolio
---------------------------------------------
Premium
- --------------------------------------------------------------------------------
Balance at 12/31/97 $ 0
- --------------------------------------------------------------------------------
Sales 2
- --------------------------------------------------------------------------------
Closing Buys 0
- --------------------------------------------------------------------------------
Expirations 0
- --------------------------------------------------------------------------------
Exercised 0
- --------------------------------------------------------------------------------
Balance at 12/31/98 $ 2
- --------------------------------------------------------------------------------
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
High Yield StocksPLUS Growth
Total Return Bond Portfolio Bond Portfolio and Income Portfolio
---------------------------------------- ---------------------- ---------------------
For the Period Period from 04/30/98
Year Ended 12/31/98 Ended 12/31/97 to 12/31/98 Year Ended 12/31/98
Shares Amount Shares Amount Shares Amount Shares Amount
- ---------------------------------------- ----------------------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receipts for shares sold 290 $ 2,900 10 $ 100 6,763 $ 65,974 5,681 $ 64,713
- ---------------------------------------- ----------------------------------------- ---------------------- ---------------------
Issued as reinvestment of distributions 23 232 0 0 163 1,577 97 1,169
- ---------------------------------------- ----------------------------------------- ---------------------- ---------------------
Cost of shares redeemed 0 0 0 0 (1,780) (17,073) (1,146) (12,272)
- ---------------------------------------- ----------------------------------------- ---------------------- ---------------------
Net increase resulting from
Portfolio share transactions 313 $ 3,132 10 $ 100 5,146 $ 50,478 4,632 $ 53,610
- ---------------------------------------- ----------------------------------------- ---------------------- ---------------------
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
5% or Greater Shareholders
---------------------------------------------------
Number % of Portfolio Held
- --------------------------------------------------------------------------------
Total Return Bond Portfolio 1 100%
High Yield Bond Portfolio 3 100%
StocksPLUS Growth and Income Portfolio 2 100%
7. Federal Income Tax Matters
As of December 31, 1998, the Portfolios listed in the table below had a capital
loss carryforward that was realized in the current year. Additionally, the Total
Return Bond and StocksPLUS Growth and Income Portfolios realized capital and/or
foreign currency losses during the period November 1, 1998 through December 31,
1998, which the Portfolios have elected to defer to the following fiscal year
pursuant to income tax regulations. The amounts deferred are $5,914 and $1,570,
respectively.
The Portfolios will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards.
Capital Loss Carryforwards (amounts in thousands)
---------------------------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
High Yield Bond Portfolio $ 75,638 12/31/06
1998 Annual Report 19
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders of the PIMCO Variable Insurance Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedule of investments, and the related statements of
operations, and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Total
Return Bond Portfolio, High Yield Bond Portfolio, and StocksPLUS Growth
and Income Portfolio (each a Portfolio of PIMCO Variable Insurance Trust,
hereafter referred to as the "Trust") at December 31, 1998, the results of
each of their operations, the changes in each of their net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which include confirmation of securities at December 31, 1998
by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 12, 1999
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $157 billion
on behalf of mutual fund and institutional clients located around the world.
Pacific Investment Management Company is one of seven investment advisory firms
which form PIMCO Advisors Holdings L.P., the nation's fourth largest publicly
traded investment management concern with combined assets under management in
excess of $244 billion. Widely recognized for providing consistent performance
and high-quality client service, the seven affiliated firms are:
Pacific Investment Management Company/Newport Beach, California Oppenheimer
Capital/New York, New York Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts NFJ Investment Group/Dallas,
Texas Parametric Portfolio Associates/Seattle, Washington Blairlogie Capital
Management/Edinburgh, Scotland
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris Chairman and Trustee
R. Wesley Burns President and Trustee
Guilford C. Babcock Trustee
Vern O. Curtis Trustee
Thomas P. Kemp Trustee
William J. Popejoy Trustee
Garlin G. Flynn Secretary
John P. Hardaway Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO VARIABLE INSURANCE TRUST
840 NEWPORT CENTER DRIVE, SUITE 300
NEWPORT BEACH, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders
of the PIMCO Variable Insurance Trust. It is not authorized for distribution
to prospective investors unless accompanied or preceded by an effective
prospectus for the PIMCO Variable Insurance Trust, which contains information
covering its investment policies as well as other pertinent information.
